Börsipäev 25. jaanuar

TEO (Acc) must not block calls to rival networks. Some time ago, the National Telecommunication Network (NTN) uniting alternative operators of Lithuanian fixed line services appealed against TEO’s actions to the Communications Regulatory Authority, because TEO had blocked calls from its pay phones to the networks of alternative operators. This week, the court has ruled that TEO has no right to block the calls. Now TEO has the right to appeal against the ruling. In larger perspective, whatever the final decision, we do not think this will have significant effect on the share price.

Kalev targeting another media company. According to BBN, there are speculations that the Estonian candy maker Kalev may be interested in acquiring a large magazine publisher Presshouse which publishes ten magazines. Similarly to some other media companies that it has acquired recently, Presshouse is struggling with low profitability and has made a profit only once in its history. This is already the fifth media company during last two months that Kalev has acquired or plans to acquire.

Estonian retailers lost EUR 41m to thieves. According to European Retail Theft Barometer, thefts from retail stores in Estonia amounted to EUR 41m (EEK 640m) last year, which is ca 1.3% of the total annual sales (EUR 3.1b). In 2005, the thieves took away ca 1.2% of total sales.

Internet booming in Latvia. During last year, the number of Lattelecom’s (Not listed) permanent internet connections increased 55% to 106,600. Lattelecom started offering permanent internet connections already in 2000, but the service really took off in 2005, when the company launched its “Home Set” package, which allows clients to install Internet services at home by themselves. This way, Latvia is quite similar to Lithuania, where internet connections is also one of the main growth segments for Lithuanian telecom operator TEO (Acc).

75,000 households capable of taking loan. According to Estonian banks, then there must be at least 75,000 more households capable of taking a housing loan. To remind, two years ago the banks said there were ca 50,000 such households. Hence, according to the banks, the situation is following – during the last years, huge amount of households have taken housing loan but despite that, the number of people who are capable of taking the loan is still increasing.

Credit loans reaching EU average level. According to Estonian Central Bank, the total volume of outstanding consumer loans in Estonia climbed from EEK 4.6b to more than EEK 8b in a year at the end of 2006. When including also car lease the total outstanding consumer credit amounted to EEK 12b, which is equal to 6% of the GDP. The corresponding ratio in the eurozone is 6.9%, i.e. Estonia very close to it.

Total home closings of 2,660 during the first quarter were 31% below the prior fiscal year's first quarter record. Net new home orders totaled 1,779 homes for the quarter, a decline of 54% from the first quarter record of the prior fiscal year, resulting from both reduced demand across the Company's markets and a higher rate of cancellations at 43%, compared to a more historically normal level of cancellations at 26% in the prior year's first quarter. However, the cancellation rate was lower sequentially from 57% in the fourth quarter of fiscal 2006.

The current market environment continues to be characterized by weak demand, with heavy discounting required to drive meaningful sales volume. While this could improve as the year progresses, the Company currently believes that the low end of its previously announced outlook of 12,000 - 13,500 closings is now a more reasonable target in fiscal 2007. At this level of closings and the current conditions in the marketplace, the Company currently expects fiscal 2007 diluted earnings per share to be in the range of $1.25 - $1.50 prior to any impact of inventory impairments and abandonment of land option contracts.

The U.S. home builders survey was slightly more optimistic in January, leading some analysts to believe the housing slump is over. We disagree. The home builders indexes remain at levels on par with the previous prolonged housing recession in 1990-91, and our models indicate sales growth and price inflation will remain negative during the first half of 2007. Home builders continue to face an inventory glut, despite aggressive efforts to reduce stock. The number of vacant units as a percent of total housing is at a record high, which highlights how difficult it is for home builders to unload inventory. Unlike an occupied home, there is no secondary transaction when a vacant house sells (i.e. there is no resident who is obliged to move). Bottom line: the steep plunge in activity is over, but prices will remain weak until the supply overhang is unwound and affordability improves significantly further.

UBS upgrades NetLogic Microsystems (NETL 21.79) to Buy from Neutral and raises their tgt to $29 from $25

BofA upgrades Abercrombie & Fitch (ANF 79.45) to Buy from Neutra

J.P Morgan adds Corning (GLW 20.90) to their Focus List

Prudential upgrades Trident Microsystems (TRID 18.27) to Overweight from Neutral and raises their tgt to $26 form $20, as they think that the issues that drove them to downgrade shares in Oct. are largely being resolved, if they haven't already been, namely around inventories, gross margins, and options.

BofA upgrades Best Buy (BBY 50.36) to Buy from Neutral

Credit Suisse downgrades Norfolk Southern (NSC 53.73) to Neutral from Outperform and cut their tgt to $53 from $57 following earnings and muted outlook for FY07. The firm says their concerns for NSC reside not only in anticipated volume softness, but also in limited FY07 prospects for meaningful margin expansion in the midst of cost pressures and tough year-over-year comparisons—particularly in the first half..

The bears can always find good reason not to believe a positive market story but the simple truth is that the indices moved up strongly and the S&P 500 and DJIA hit recent new highs. Whether it is justified is really secondary to the fact that the action was positive and many stocks were up quite nicely.

It is very easy at times to get so caught up in trying to discern the "truth" of the market that we lose sight of the simple fact that it's the gains on the table at the moment that are most important.

Although we always want to keep in mind the profits we can make today, we also can't be so short term in our thinking that we don't consider whether the strong action will be sustained. The action yesterday certainly was positive but there were a few issues of concern. The breakouts in the DJIA and S&P 500 were on unconvincing volume. Although they moved to new highs they did so on just average volume, which suggests follow-through may not come that easily.

The big winner yesterday was the Nasdaq but even with that move the index still has a ways to go before it tests the highs we hit a little over a week ago. It is still just a bounce, albeit a very healthy one on good volume and it is likely to continue at least on the open because some good earnings last night, most notably from eBay.

The key to the market in the short term is going to be the report from Microsoft after the close tonight and then the FOMC interest rate decision and Google earnings next Wednesday. Those events are going to shape the action, which means we need to focus on the mood of the market as they occur.

There really is no doubt that Microsoft will post a fairly good report tonight and is likely to make some positive comments about the upcoming consumer launch of Vista. The issue is the level of expectations going into that report. MSFT has been moving up steadily since June and spiked higher just over a week ago. One look at that chart tells us that the market is looking for something very good here. Google next week will be very similar but it tends to have less overall market impact than MSFT.

After a strong open for the Nasdaq this morning I suspect we will see things calm down and some mild profit-taking kick in as we await MSFT. I have serious doubts that MSFT is going to be able to put up a report good enough to sustain a further upside move in that stock and that may lead to another bout of profit-taking.

In the early going we have mixed action. The after-hours strength in the Nasdaq is fading and the S&P 500 is indicated negative. Overseas markets were mostly down last night, which is a bit surprising given the technology strength we had yesterday. The dollar is weak and that is hurting Asian exporters and boosting gold.